While a number of features remain supportive for equity markets, the tide may be in the process of changing in view of other less favourable features.

Running through these briefly, the following are among the more positive or supportive features. First, monetary policy remains ultra loose, a stance that is unlikely to alter for some while in the US, where it matters. Second, despite the pressure for fiscal rectitude, policy here is unlikely to turn appreciably restrictive before there is confidence that the fledgling recovery in the major economies is sustainable. This is something that will remain an open issue for a while.

Third, earnings growth is proving to be stronger than expected and consensus earnings estimates have been revised up. Fourth prospective p/e ratios or bond-equity earnings yield ratios, say for the FTSE World Index, are back to where they were during the last bull market. We argued then that equity markets were reasonably and sensibly valued and this remains the view.

Among the less favourable features are the following. The first is the eventual change in the Fed's ultra-easy monetary policy. Granted, the Fed's latest operational step in raising the discount rate is not tightening but, in time, the US Treasury market may choose to focus on what comes next, thereby putting equity markets under pressure.

David Fuller's view Mike Lenhoff provides a good summary of the key issues influencing market discussions today. One could argue that we currently have a standoff, which is why most stock markets have been in ranging patterns for at least a number of weeks.

Since the less favourable features mentioned in the report above are more recent, they may have the upper hand in terms of influence. Having seen a loss of upside momentum and a correction for most stock market indices, if this is still a cyclical bull we will need to see more than a bounce up off the 200-day moving averages. The major indices need to break any progressions of lower rally highs, establish a new series of higher reaction lows, and sustain moves to new recovery highs. (See also additional comments below.)